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Reader Case: Is Our Age Gap OK?


Wanderer
Photo by Mayur Gala on Unsplash

I recently got an email with the subject line “Is our age gap a blessing or a curse?” and I giggled a bit. Because that’s a question that if you have to ask it, the answer is almost always “Dude, I’m pretty sure that’s a felony.”

So on that note, let’s see what kind of felony our reader is committing, shall we?


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Hello Firecracker and Wanderer,

It was really nice that I come across your book in a Facebook group for FIRE and since I have read your book twice and the simple path to wealth once and now I just got into your blog and I can’t believe how much information you put out there and the best part for free, which is greatly appreciated!

I’m writing to you hoping to get some feedback about my situation:

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1- we are married couple with no kids, wife is 61 and I’m at 47 both working full time.

2- Gross income: USD 250,000 and net income is USD 170,000 and both maxing our 401K.

3- Monthly family spending is USD $8000 mostly going to mortgage ($2200), HOA $172, property tax ($1500), travel ($2000), food ($500), grocery ($800), car insurance ($200), house insurance ($50), internet and cell ($150),PGE ($250), water ($100), garbage ($100)

4-Debt: the house was bought on 2020 for USD 699,000 and now worth USD875,000 outstanding balance of USD454,000 @2.625 and $2200 monthly payment

5- Fixed assets:
A- Three houses in Tunisia ( all paid for and worth ~ $300,000)with 2 rented @ $300
B- Current house in CA with an equity of ~USD 400,000
C- Car: worth $35,000

6-Investment:
A- brokerage account: $360,000
B- 401K: $420,000
C- Wife 401K: $470,000
D- HSA: $14,000
E- Wife IRA: $7000
F- checking/Saving account: $30,000 ( saving with 0.01%)
G-CD: $20,000. @. 5.5%

I have done so many calculation and my thinking is that retiring in CA, keeping the house and the same spending is hard to achieve with the amount of investment we have.
My thinking ( hoping I get feedback about it from you :)), giving the age gap we have and that my wife is close to the age of collecting social security we can retire in 2026 under the following circumstances:
1- Sell the CA house and invest the proceeds and by doing that we heat 2 birds with one stone ( get rid of the house mortgage and its expenses) which will bring our monthly expenses down. Or rent the house and airbnb when in the State. Estimated rent is $3500
2- retire only on my wife sociale security and dividends from our 401K, brokerage account and IRA without touching the the principal in those accounts and let them grow a little more.
3- Spend 6 months in the US and 6 months either in Tunisia or travelling around the world

My thinking we have enough to fire soon but my wife is not comfortable and thinks we need to keep working, any thoughts.

Your input is very appreciated!

Thank you,

AgeGapCouple


OK PHEW. That went in a completely different direction than I was expecting, and I am happy to report that your age gap is totally fine. It might even work out in your favour, since a lot of the hoops we millennials have to jump through to, for example, access our retirement accounts penalty-free is because our age doesn’t match what the government considers worthy of retirement. Plus you can actually receive social security! I think many of the people our age are half expecting government pension systems to collapse into rubble by the time we’re old enough to collect it.

To figure out where we stand, let’s start by summarizing all the inputs into our reader’s financial picture.

Summary Amount
Income $250k gross, $170k net
Expenses $8000 per month, $96k per year
Assets $1.321M liquid + $875k house + $300k real estate in Tunisia
Debts $454k mortgage

In order to finance this couple’s $8000 monthly expenses, we need $8000 x 12 x 25 = $2.4M in liquid assets. They’ve accumulated an impressive nest egg of $1.321M, but it’s not enough. However, their considerable earning power means they likely aren’t too far off. At net earnings of $170k, and spending of $96k per year, they should be able to sock away $170k – $96k = $74k in savings annually. At that rate, they’d be able to hit FI in…

Year Balance Savings ROI Total
1 $1,321,000.00 $74,000.00 $79,260.00 $1,474,260.00
2 $1,474,260.00 $74,000.00 $88,455.60 $1,636,715.60
3 $1,636,715.60 $74,000.00 $98,202.94 $1,808,918.54
4 $1,808,918.54 $74,000.00 $108,535.11 $1,991,453.65
5 $1,991,453.65 $74,000.00 $119,487.22 $2,184,940.87
6 $2,184,940.87 $74,000.00 $131,096.45 $2,390,037.32

A little over 6 years. That’s not too bad at all, but remember that our reader’s wife is 61 years old. She would be 67 years old when that happens, and given the impressive size of their investments, I think we can do better.

California Dreamin Taxes

One thing jumped out at me as I was reading this reader case is the property taxes this couple is paying. $1500 a month? That’s $18k a year! In property taxes! That’s the equivalent of 2% their home’s assessed value that evaporates each and every year. That is nuts.

You know, call me old fashioned, but when I pay a lot of taxes to the government, I expect the government to, you know, do stuff for me. All in, this couple is paying $80k in income taxes, then $18k in property taxes for a total yearly tax burden of $98k! And for what?

Is it for California’s excellent public transportation system? Nope, you have to drive everywhere yourself. Is it for it’s generous state-run health care system? Nope, that costs extra, and boy is it not cheap. But at least their power grid is so well designed that…oh wait, PG & E’s infrastructure is so poorly maintained that it keeps sparking massive wildfires and wiping out entire towns.

So what are you getting for $100k a year? Friggin’ bupkis!

So if this couple sells, not only would they be able to give a big middle finger to the Californian tax authorities, it would free up $400k – 5% real estate commission = $380k. That bumps up their nest egg from $1.321M to $1.7M. That would be enough to finance $1.7M x 4% = $68k in spending per year, or $5667 per month. Of course, they’d have to add rent back into the equation but we’ll get to that in a minute, because of a little thing called…

Social Security

OK NOW the government’s actually starting to come in handy for something.

Now before I get into this topic, I want to emphasize that deciding when to take social security is definitely something you should consult a tax professional, rather than rely on some internet guy’s opinion. This is because if you take social security early, you get less money per month, and for that reason, traditional financial planners advocate that their clients wait as long as possible, even waiting until they turn 70, to get the maximum possible payout.

I think this couple should do the opposite, and here’s why.

According to the SSA, the average payout on social security is currently $1781.63, but that’s for someone that retires at a “normal” age of 67. If you take SS early, your payment gets cut by 30%, so if you start taking it at the earliest possible age of 62, your monthly payment would be $1781.63 – 30% = $1247.14.

If you add that to our couple’s monthly budget of $5667, that ups it to $5667 + $1247 = $6914. Their current non-real estate expenses are about $4000 a month, so this leaves $2914 for rent. Can they find a nice rental somewhere in the world that DOESN’T tax them to death for $3000? Probably.

But remember, they also own a paid-off property in Tunisia, and they intend to spend half the year there. That means that their rental budget for the time not spent in Tunisia doubles, since they can reallocate the money they didn’t spend. Can they find a nice rental somewhere in the world for $6000? Definitely.

Hell, that’s enough to go nomadic, or live in an expensive location in the US, or any combination of the two. The world is your oyster!

What About Health Insurance?

Something every early retiree has to consider is health care costs, especially if you’re from the US. When you’re working, your health insurance comes from your employer, but once you retire, you’re going to have to get insurance yourself via Obamacare.

Fortunately, once you retire, typically your income drops quite a lot, which qualifies you for Obamacare subsidies. If this couple’s only income was their Social Security, so $1247.14 x 12 = $14,965.68, they would qualify for free health care under Medi-Cal. Thanks Obama!

Now of course, Social Security is not the only income an early retiree will have. Dividends, capital gains, and 401(k) withdrawals all add to your Modified Adjusted Gross Income, or MAGI, which determine your eligibility for Obamacare subsidies. And in the past, this MAGI number had to be carefully managed in retirement or you run the risk of going over the 400% Federal Poverty Level amount that would trigger the dreaded Obamacare subsidy cliff that could cost you thousands of dollars.

But now, there were two laws passed in recent years that eliminated this: The American Rescue Plan in 2021 and the Inflation Reduction Act in 2023. Together, the new rule is that your health care premiums are capped at 8.5% of your MAGI. So you still have to keep an eye on the income you report in retirement because the more income you report, the higher your health care premiums will be. But now, if you mess up and accidentally go over the arbitrary 400% FPL number, you won’t get screwed over. Thanks Biden!

However, when they travel overseas, they’ll still have to purchase supplemental travel insurance to cover them when they’re outside the US. We use SafetyWing for travel insurance, and the cost of insuring a 62 year old and a 48 year old would be $157.36 and $73.92, respectively, for a total of $231.28 per month. So that has to be added to their budget.

Tunisian Real Estate

One last thing jumped out at me when reading their numbers, and that’s the fact they they own 3 paid off properties in Tunisia worth $300k and are renting out two of them for $300 a month. I don’t know exactly how much each property is worth, but if we assume that all 3 are worth $100k each, then the 2 investment properties are worth $200k together. That means that $200k of real estate equity is generating $600 a month, or $600 x 12 = $7200 a year. This equates to an ROI of $72k / $200k = 3.6%, which isn’t that great considering a money market fund is yielding 5% risk-free and completely passively. Land-lording is a lot of work, and professional real estate investors won’t even look at a property unless they can make 10% ROI on it.

I don’t have all the details of these properties, like how much each individual one costs, whether the tenants are easy to manage, what the maintenance costs are, etc. But from my 10,000 foot view, those Tunisian properties deserve a hard look at whether it makes sense to own, because if they’re not beating a savings account, why would you own it?

Conclusion

So is their age gap a problem? Not at all! In fact, I think this technically makes our reader his wife’s sugar baby. And there ain’t no sweeter life than that 🙂

And I’m sure that my suggestion to take SS early will generate a lot of howling in the comments, but I would argue that once you have enough money to start enjoying life, go do it! They could start their retirement as early as next year! There is such a thing as saving too much money, after all.

But at the risk of repeating myself, talk to a tax professional before making any decisions regarding your social security because I don’t have all of the wife’s financial details. At the very least, she should log into her SSA portal and see what her actual benefit payment would be, because my analysis was based on the average. If her social security contributions put her closer to the max possible payout, that would approximately double her monthly payment to $2334.

What do you think? Would you pull the trigger or keep working towards a full social security payout? Let’s hear it in the comments below!


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Romulo is a renowned American entrepreneur who resides in the United States, recognized for his entrepreneurial vision and inspirational leadership. Born into a humble family, Romulo demonstrated an uncommon determination and a natural talent for business from an early age. After completing his studies in business administration, Romulo ventured to the United States, where he immersed himself in the business world, founding his first company at the age of 25. His bold vision and ability to identify market opportunities quickly led him to success on American Throughout his career, Romulo has played key roles in various industries, from technology to finance, always striving to innovate and create value for his clients and investors. His customer-centric approach and dedication to operational excellence have made his companies industry benchmarks, contributing to his recognition both in the United States and interna In addition to his business achievements, Romulo is known for his commitment to corporate social responsibility. He is a passionate advocate for education and community development, dedicating time and resources to support initiatives that promote equal access to education and gr Currently, Romulo leads a diversified conglomerate with a global presence and a significant impact in the markets where he operates. His long-term vision and ability to adapt to the nuances of the American market make him a respected and admired leader among his peers and competitors in the Unit Outside the office, Romulo is an avid reader and nature lover. He believes in the importance of finding a balance between work and personal life, constantly seeking new ways to challenge himself and grow, both profession With a career marked by extraordinary achievements and an unwavering commitment to sustainable success, Romulo continues to be a prominent figure in the international business landscape and a source of in

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